5. How to understand the applicability of economic theory?

To discuss the applicability of traditional trade theory (or comparative advantage theory) and modern trade theory (or new trade theory) in China at the present stage, we should first analyze the applicability of these two theories from the general theoretical significance and foreign trade practice of developing countries.

(A) two theoretical assumptions of international trade

The essence of comparative advantage theory is free trade theory, and its basic theoretical foothold is classical and neoclassical economic thoughts, considering how to optimally allocate economic resources in the global scope under the condition of perfect competition. The most fundamental premise of comparative advantage theory is that perfect competition and constant return to scale are a typical neoclassical analysis method. Although neoclassical microeconomic theory has been criticized a lot in the theoretical history, its theoretical building has never been destroyed after more than 100 years of wind and rain. The theory of comparative advantage is an extension of neoclassical economic theory in the international scope, which advocates the theory of trade mutual benefit based on international division of labor. From the perspective of welfare economics, this kind of international free trade can reach the Pareto optimality of the whole world economy. Therefore, the theory of comparative advantage has a solid theoretical foundation. From the application of theory, the traditional trade theory objectively explains the trade phenomenon between suzerain and colony, and between developed and developing countries. However, the theory of comparative advantage can't explain the new changes in the field of international trade since 1970s, such as the sharp increase of trade volume between developed countries, the sharp increase of trade volume between similar products, the unprecedented strengthening of the role of multinational corporations in international economic and trade activities, and the obvious economies of scale of industries.

The new trade theory denies the theory of comparative advantage by grasping two basic premises of the theory of comparative advantage, and holds that the international commodity market has two basic characteristics: imperfect competition and increasing returns to scale, thus reasonably explaining the new phenomena in the field of international trade. The essence and essence of the new trade theory represented by Guruge Mann, Helpmann and Dixit are all embodied in the theory of scale economy. Increasing returns to scale means that manufacturers have internal economies of scale, that is, large manufacturers have cost advantages over small manufacturers and can form an oligopoly or monopoly market structure. Under this premise, the number of manufacturers in the same industry is small, and each manufacturer produces differentiated products, which makes each manufacturer a price maker rather than a price receiver to a certain extent. That is to say, assuming that consumers' demand preferences are heterogeneous, even in the case of similar resource endowments, countries will inevitably conduct international trade through specialized production of limited products for the sake of economies of scale. That is, besides comparative advantage, economies of scale have become another independent motivation of international trade, which is usually used to explain intra-industry trade. Strategic trade policy is derived from the inevitable logic of the new trade theory, that is, a country's government protects the domestic market, fosters the growth of its strategic industries, realizes economies of scale, seizes the market share of international competitors, or seizes foreign monopoly profits through import taxes. Therefore, the strategic trade policy is essentially a limited protection policy.

As far as the applicability of the theory itself is concerned, the main difference between the two theories lies in the grasp and judgment of the structure of the international commodity market. If the international market is completely competitive, then the theory of comparative advantage is absolutely established; On the other hand, if the international market is an imperfect competitive market, then grabbing monopoly rent will inevitably become the goal pursued by all countries or economic entities, so assuming other conditions remain unchanged, the strategic trade policy has its rationality. To this end, we need to further analyze the history of international trade and the foreign trade effects of developing countries.

(B) from the international trade history to see the applicability of the two theories

The arguments against the theory of comparative advantage mainly come from economists in developing countries. They believe that the hypothesis of perfect competition in the theory of comparative advantage cannot be established. Therefore, although the theory of comparative advantage is conducive to the optimal allocation of world resources in the short term, it will lead to changes in the terms of trade of countries in the long run. Specifically, because developing countries mainly export primary products, technological progress is slow, demand elasticity is low, scale returns are decreasing, and perfect competition is obvious; However, developed countries mainly export technical products with high demand elasticity and increasing returns to scale. In this way, the trade between developing countries and developed countries is an "unequal trade", and the terms of trade of developing countries are deteriorating. If developing countries blindly pursue the theory of comparative advantage, they will be in an increasingly unfavorable position in the international division of labor and fall into the "poverty trap" (prebisch, 1950). Judging from the economic growth of all countries in the world, there is indeed a feature of increasing economic differences among countries. Therefore, it is reasonable for countries, especially developing countries, to implement limited trade protection policies. The question is, does implementing the limited protection policy mean completely denying the applicability of the theory of comparative advantage? Can strategic trade policy completely replace the theory of comparative advantage and become the basis of foreign trade of developing countries? We think not.

First, although the theory of "deterioration of terms of trade" of developing countries was put forward as early as 1950s, it did not have a substantial impact on the foreign trade of developing countries. On the contrary, the scale of international trade has become larger, and the economic growth of all countries is increasingly dependent on foreign trade. Taking 1996 as an example, the dependence on foreign trade of low, middle and high-income countries reached 43%, 52% and 40% respectively (World Bank, 1999). Research shows that since 1950s, among the economic indicators related to economic growth in developing countries, export activities have the highest correlation with economic growth. Moreover, so far, no country has been able to keep the economic growth rate higher than the export growth rate for a long time (Seval, 1983, pp. 35 1 ~ 360). This shows that the history of international trade development shows that it is an indisputable fact that all countries benefit from international trade, although their profit levels are different.

Second, although there are imperfect competition factors in the international market, the degree of competition of commodities is generally greater than that in the domestic market. On the one hand, free trade in the world economy is an irreversible trend, and with the lifting of trade barriers between countries, the degree of free competition is even greater; On the other hand, faced with the reaction of many international competitors, it is difficult for an economic entity to control the price of a certain product in a wide international market for a long time, especially for developing countries. Therefore, strategic trade policy has no universal guiding significance for developing countries. On the contrary, the theory of comparative advantage is more suitable for guiding the foreign trade strategy of developing countries.

Third, although the strategic trade policy helps developing countries to improve their terms of trade in theory, it is very difficult to implement it. Theoretically speaking, the key to the success of this policy lies in the imperfect competition characteristics of the industry, at least in the domestic market, which has economies of scale, but developing countries often face both completely competitive international markets and fragmented domestic market structures; Moreover, the success of strategic trade policy also depends on unilateral strategic actions, that is, assuming that foreign countries have not taken corresponding retaliatory measures. Obviously, this ideal state cannot be realized, and Japan's strategic trade policy in the steel industry has attracted retaliation from the United States. On the contrary, the theory of comparative advantage will not cause retaliation, and it is a "win-win" policy.

Obviously, the theory of comparative advantage is more suitable for guiding the foreign trade of developing countries, no matter from the assumptions of the two trade theories or from the world trade practice, but the prospect of implementing strategic trade policies is not optimistic. More specifically, discussing the applicability of a theoretical policy in a country is to study whether the country has the preconditions and implementation conditions required by this theory or policy. We believe that at this stage, China does not have the preconditions and conditions to implement strategic trade policies. The reason is:

First, the economies of scale of industries and enterprises are not obvious. The industrial requirements implemented by the strategic trade policy have the characteristics of increasing returns to scale, which first requires these industries to have economies of scale in the domestic market. According to the experience of developed countries, the implementation targets of strategic trade policy include commercial aviation sector, semiconductor, telecommunications equipment sector, automobile sector and so on. In China, the geographical concentration of these industries is low, and the scale of enterprises is generally too small to reach the minimum effective scale, which is not enough to compete with similar departments abroad; On the other hand, enterprises "blossom everywhere", repeat production, and excessive competition is serious. The administrative division of the domestic market has caused the scale of these industries to be uneconomical.

Second, it is easy to lead to new market distortions. Strategic trade policy itself is an intervention in free trade to a certain extent, which may bring about two kinds of market distortions. First, distort microeconomic subjects. China is in the process of transforming from a planned economy to a market economy. Many important industries belong to state-owned enterprises and have not been completely transformed according to the modern enterprise system. Enterprises are still administrative to a certain extent. The existing monopoly position of enterprises is administrative monopoly, rather than natural market competition. Enterprises lack the motivation and pressure of technological innovation, and can't achieve increasing returns to scale, so they can't be competent for the micro-subject role of strategic trade policy. In this case, the compulsory implementation of strategic trade policy may make industries or enterprises have more policy dependence, and even lead to a large number of unproductive rent-seeking behaviors, resulting in the loss of efficiency. Second, the full implementation of the strategic trade policy will inevitably require a lot of government subsidies or economic support, which will often lead to excessive use of scarce economic resources, resulting in excessive opportunity costs, thus weakening the export of China's comparative advantage products. At the same time, monopoly protection of strategic trade industries or enterprises makes them grow in the "greenhouse", which also sacrifices the efficiency of market competition and is not conducive to the healthy development of the whole economy.

In addition to the above constraints and the possibility of foreign retaliation, strategic trade policy also needs a series of other harsh necessary conditions and application field restrictions. For example, determining strategic departments requires a lot of timely, sufficient and reliable information, and even a little mistake in policy formulation will lead to extremely serious consequences. Therefore, China should not adopt strategic trade policy at this stage, which is not only the need of logical deduction of economic theory, but also the need of protecting China's real economic interests.

two

(A) the theory of comparative advantage and China's current foreign trade situation to adapt.

First, China's trading partners are mostly developed countries. Krugman (1998) thinks that "the relative importance of intra-industry trade and inter-industry trade depends on the similarity between countries", and the similarity between countries can be measured by the index of capital-labor ratio. His basic viewpoint is: if the capital-labor ratio between countries is very similar, intra-industry trade will dominate; On the contrary, if the capital-labor ratio between countries is completely different, all trade will be based on comparative advantage. According to some data, most of the trading partners with China are developed countries or regions with a large difference in capital-labor ratio with China. China, Hongkong, Japan, the United States and the European Union are China's four largest trading partners. Take the exit of 1998 as an example. China exported183.7 billion dollars that year. Exports to the above four major trading partners account for 73.3% of China's total exports, while exports to other 100 developing countries and regions, the former Soviet Union and Eastern European countries account for less than 27%. It can be seen that China's foreign trade should and must be based on comparative advantages. Second, China's exports are mostly in the international market facing complete competition, and China enterprises have poor price control ability in the international market. According to microeconomic theory, the key to judge whether the market structure belongs to the type of perfect competition lies in two points: first, the number of manufacturers entering the market; The second is whether the manufacturer is the price recipient. Generally speaking, the market with many producers and little difference in products belongs to perfect competition, and the most typical example is the agricultural product market; On the contrary, those with fewer producers and great differences between products belong to imperfect competitive markets, such as automobile industry and aircraft manufacturing. Although China basically completed the transformation of export commodity structure from primary products to manufactured goods during the Eighth Five-Year Plan period, at present, most of the manufactured goods exported by China are rough-processed textile products and general mechanical and electrical products, while the proportion of finished products and high-tech products is very small (Xu Fu, 1999), which means that most of China's export products are still labor-intensive products with low added value. Because it does not have the monopoly position of means of production, scale income and patented technology, it does not have the ability to control prices in the international market. In particular, it should be pointed out that although China's main export industries, such as textiles, clothing, shoemaking, processing and binding, are similar to other developing countries and the competition is becoming increasingly fierce, they still have considerable international competitiveness, and these products are all comparative advantages. We should give full play to our comparative advantages, gain a firm foothold and expand the international market.

(B) The theory of comparative advantage still has potential in China at this stage.

Since the reform and opening up, China's economy has gradually transformed from a planned economy to a market economy, and the theory of comparative advantage has been implemented and applied in the field of foreign trade with this transformation. It can be said that China's foreign trade achievements in the past 20 years of reform and opening up are based on comparative advantages. Specific now: First, the foreign trade structure gradually reflects the factor endowment. From the structural changes of imports, agricultural-intensive products have fallen sharply, and capital-intensive products have grown the fastest; From the perspective of export structure, the export proportion of labor-intensive products rose rapidly after 1986. Although the export share of capital-intensive products is also increasing, most of its production is processing and assembling imported raw materials and parts, of which imported parts account for 4/5 of the export value, so this export is labor-intensive in nature (Zhang Jun, 1998). Second, processing trade makes full use of China's cheap labor resources, combines China's labor with foreign capital, technology and markets, and implements and embodies the idea of comparative advantage. In recent years, the proportion of processing trade in China's total foreign trade has been rising. Therefore, according to the theory of comparative advantage, China has initially established the export mode of labor-intensive products and the import mode of capital-intensive products.

In our opinion, the current trade model based on comparative advantage is far from its potential in China, and there is still a lot of room for growth. Judging from the transformation process of trade forms between developed countries and newly industrialized countries, the export of labor-intensive products should not be transformed into capital-intensive or technology-intensive before the labor cost rises sharply, especially for China, a big country with abundant labor and great employment pressure. So we use balasa's comparative advantage index to measure that China's labor-intensive products still have obvious comparative advantages. The comparative advantage coefficient of labor-intensive products in China is about 3.5, which is much higher than that of capital-intensive products with a coefficient value of 0.5. The comparative advantage coefficients of Hong Kong, South Korea and Taiwan Province Province 1980 labor-intensive products are 6.98, 4.95 and 5.24 respectively, which shows that there is still a lot of room for growth in China's labor-intensive products exports.

At present, the world economy is gradually moving towards globalization and integration, and the production, trade and investment of all countries are increasingly integrated. Only by using the theory of comparative advantage to guide the foreign trade practice of various countries can we conform to this international trend. In other words, whether from the logical deduction of economic theory or trade practice, it is China's rational choice to take the theory of comparative advantage as the theoretical basis of China's foreign trade at this stage.

refer to

[1] Krugman. International economics [M]. Beijing: Renmin University of China Press, 1998.

[2] serval cat. Growth and development, translated by Jin Bei and Li Yang [M]. Beijing: Renmin University of China Press, 1992.

[3] World Bank World Development Report [M]. Beijing: China Financial and Economic Publishing House, 1999.

[4] Tang Yonghong. Applicability of Strategic Trade Policy Theory in China [M]. International Trade Issues, 1999(6).

[5] Xu Fu. Introduction to China's foreign trade [M]. Tianjin: Nankai University Press, 1999.